Car trouble (part 2)
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
5 February 2021
Justine Riccomini explains the outcome of the second of two tax case decisions which have left the taxpayers with a hefty benefit in kind charge.
Tax Case 2
When is a van a car?
In the long-running case of Payne, Garbett and Coca-Cola European Partners Great Britain Limited v HMRC, the Court of Appeal decided in August 2020 that the three panel vans (a Vauxhall Vivaro and two VW Transporter T5 Kombis) were to be treated as cars for BIK purposes – which of course conferred a much higher BIK on to the employees and a higher employer NICs liability on to the employer. This is an important decision for employers who supply these fleets to employees and serves as a note to the unwary that care should be taken when considering what declaration to make on P11D.
Previous decisions at the First and Upper Tier Tax Tribunals had allowed one of the vehicles (the Vivaro) to remain classified as a van while the other had to be reclassified as a car.
Tech spec
Each of the vehicles was fitted with a second row of seats behind the first row – known as a “crew cab” fit out. The Vivaro was fitted out slightly differently to the other two Kombis and survived the Tribunals as a van because the second set of seats did not extend across the full width of the vehicle, whereas in the Kombis, they did, which reduced the load space at the back of the Kombis by a small margin. The Kombi seats were removable - but this only appeared to demonstrate to the Tribunals that the vehicles served an equal dual purpose of transporting people as well as cargo, whereas the Vivaro was deemed to be primarily fitted out to carry cargo.
The Court of Appeal disagreed that the Vivaro technical specifications were so radically different from the Kombis as to draw a distinction – and classified them all as cars.
Tax adviser’s dilemma
Due to the binding (but still appealable) nature of the decision, essentially this outcome leaves those advising clients on the matter of car and van fleets with some crucial discussion and review points for the agenda of the next meeting:
- Are fleets of what the clients thinks are vans now to be treated as cars, where they have been modified to accommodate mixed cargo of people and goods?
- What evidence does the client have to back this rationale up?
- Are previously submitted returns of expenses and benefits (P11Ds) in need of amendment?
- What choices is the company making in terms of fleet renewals going forwards?
- What levels tax and NICs are potentially at risk if nothing is done?
- What are the relevant VAT and capital allowances points? (see below)
VAT and Capital Allowances implications
Whilst the Coca-Cola case did not consider the capital allowances aspects, clearly if capital allowances have been overclaimed by the business, there may be more tax to pay. The definition of a van for capital allowances purposes is similar to that within s. 115 ITEPA 2003. Vans are generally also eligible for the Annual Investment Allowance, and cars are not.
Similarly, the VAT treatment of the purchase of cars is different to that of vans and is generally speaking, not recoverable. To add to the complication, the definition of a van for VAT purposes is not the same as it is for BIK purposes and an exemption can be applied if the payload is one tonne or above regardless of whether there is a second row of seats.
So, it may be the case that due to this ruling, some vehicles in a fleet are treated as cars for BIK purposes, whilst treated as a van for VAT.
Finally - a note on Double Cab Pick-Ups
It is not entirely clear whether “double cab pick-up” vehicles, which are treated as vans for both VAT and BIK purposes where the VAT payload definition is fulfilled, are now to be treated differently – time will tell.